How does Chick Fil A calculate depreciation expense of property and equipment?
Chick_Fil_A Franchise · 2025 FDDAnswer from 2025 FDD Document
wise supply the Operator's needs promptly, accurately and reliably, provided that the Operator will also comply with the Concession Agreement. In the event of any conflict between Concessionor's requirements and Chick-fil-A's requirements, the Operator will notify Chick-fil-A before having any service or repair work performed. In the exercise of Chick-fil-A's sole and exclusive business judgment, Chick-fil-A may deliver used Equipment to the Concession Location(s) or leave Equipment at the Concession Location(s) which had been used at the Concession Location(s) prior to the date of this Agreement.
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- Commencing on the Effective Date, the Operator will pay to Chick-fil-A, in Atlanta, Georgia, a monthly rental for the Equipment based on its then current fair market rental which Chick-fil-A in its sole and exclusive judgment initially determined to be Seven Hundred Fifty and No/100 Dollars ($750.00) (the "Equipment Rental"). Chick-fil-A will have the right from time to time to re-determine the Equipment Rental in its sole and exclusive business judgment based on the then current fair market rental value for the Equipment due to additions, subtractions, and modifications to the Equipment, market factors, inflation, passage of time or otherwise, and to update the Equipment Rental to an amount based on the then determined, current fair market rental, which will be set forth in a revised Equipment Lease Addendum and substituted and attached to this Agreement as revised Exhibit B. At Chick-fil-A's election, the program described in Section 14.12 of the Franchise Agreement will apply to the Operator's payment obligations described in this Agreement with respect to the Equipment and any other payment obligations of the Operator under this Agreement, and any adjustment or increases to the Operator's payment obligations.
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- Commencing on the Effective Date, the Operator will timely pay directly to the appropriate business, governmental entity or other person or entity any and all costs and expenses of operating and maintaining the Equipment for the Concession Location(s) during the Term of the Concession Agreement, including the following:
- (i) all charges, costs and expenses necessary to maintain the Equipment in good condition, ordinary wear and tear excepted;
- (ii) all taxes, levies and charges assessed against the Equipment and/or against the Operator or Chick-fil-A in respect of the Equipment, including but not limited to any property tax or any sales or use tax assessed on the Equipment Rental; and
(iii) all charges and costs of all ordinary repairs to the Equipment.
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Source: Item 23 — Receipts (FDD pages 103–600)
What This Means (2025 FDD)
Based on the 2025 Chick Fil A Franchise Disclosure Document, the document does not explicitly detail how Chick Fil A calculates depreciation expense for property and equipment. However, it does mention that Chick-fil-A determines the fair market rental value of equipment and may re-determine this value periodically based on factors like additions, subtractions, modifications, market factors, inflation, or the passage of time. This fair market rental is used to calculate the monthly equipment rental fee that the operator pays to Chick-fil-A.
Furthermore, Chick Fil A is responsible for replacing equipment that becomes worn out due to normal wear and tear, provided it is listed on Schedule 1 of the Equipment Lease Addendum. The operator is responsible for maintaining the equipment and replacing items not listed on Schedule 1. The operator is also responsible for costs and expenses related to operating and maintaining the equipment, including taxes and repair costs.
For a prospective franchisee, it's important to understand the specific equipment included in Schedule 1, the criteria Chick Fil A uses to determine fair market rental value, and how frequently this rental value may be adjusted. Understanding these factors will help in forecasting operating expenses and profitability. A prospective franchisee should seek clarification from Chick Fil A regarding the specific depreciation methods used for internal accounting purposes and how these methods might indirectly affect the franchisee's financial obligations.